The Gulls have picked up just a point so far, conceding ten goals in the process.
Nicholson was appointed play-manager in September 2015 and guided the club to safety last season.
A statement on the Torquay website reads: "Torquay United Football Club have announced the departure of player-manager Kevin Nicholson with immediate effect.
"As a football club, we would like to thank Kevin for all his hard work as a manager and player for Torquay United, and we wish him well for the future.
"Torquay United will not be making any further statements at this stage."
Nicholson cut a frustrated figure following Tuesday night's loss to Gateshead.
"I’m a little bit embarrassed and I feel let down by the players tonight," said the player-manager. "I understand there being a few nerves after what happened on Saturday. You’re not going to win games of football if you give away goals like we’ve given away today. We’ve quite literally given them four, if it wasn’t for Ryan Clarke in goal we would have given them more.
"In the first-half we started well and got on the front foot and then for some reason, because we didn’t score, we went back into our shells and that’s just not acceptable."